IBM at the Crossroads: IBM Responds

In this second of a three-part series IBM responds to comments from analysts and IBMers about the future of the company as a chipmaker.

SAN JOSE, Calif. — IBM declined to comment on reports in February that it is exploring a sale of one or both of its fabs. But a senior executive in IBM's chip group makes the case those fabs remain strategic

"The latest Power 8 processors have four times more threads and twice the memory bandwidth of the desktop-derived processors [from Intel]. That gives us an advantage for the new workloads coming," says Arvind Krishna, general manager for the development and manufacturing unit in the IBM Systems and Technology Group.

"To get those advantages we have to design our own microprocessors... and to build those processors we have to advance the state of process technology in areas like lithography and [circuit] characteristics."

Unfortunately, Power system sales are in a significant decline. After reaching a plateau in about 2005 of $7.5 billion, sales started to slide and last year dropped more than 30% to $3.9 billion.

In its 2013 annual report IBM said it "recognizes that the size of the Power platform will not return to prior revenue levels. The company will take action by right-sizing the business for the demand characteristics it expects."

IBM has done that "right-sizing," on several fronts, Krishna argues. For example, it is now adopting standard KVM virtualization software across all its systems rather than developing software unique to each platform.

In addition, it is likely to reduce the variety of models of Power systems it designs. "As opposed to 15 Power models, maybe I can get away with 10," he says.

Its biggest effort came in April when it made the Power processor design open-source, something the former Sun Microsystems tried unsuccessfully with its Sparc processor years ago. Members of the Open Power Foundation may "design and manufacture Power [chips, doing] design iterations and refinements and making wherever they like," says Krishna.

So far, Google has shown board-level designs but not commented on plans to use them in its datacenters. A company in China says it will license Power.

In a separate move, IBM announced in January the sale to Lenovo of its related business making x86-based servers.

The efforts have helped IBM keep its chip operations intact. However the company routinely continues to review all its make-vs.-buy decisions, Krishna says. "Our shareholders and customers expect us to."

@Rick, it seems to me that decisions like this from IBM or for that matter many others, is often shortsighted and is in response to short term perturbances in revenue. When business conditions change and new product opportunities pop up, it is nearly impossible to re-enter when most talent that can do the job has been let go!

They are definitely losing lot of employees to competeitors and soon this could be no more an view but will be a realty. I think sooner or later IBM wil come out of semiconductor business to aim for bigger IT business.

"IBM's Krishna points to an often cited statement by IBM CEO Virginia Rometty that IBM "will remain a leader in high-performance systems and continues to invest in R&D for advanced semiconductor technology."

and mostly that IBM does not take the shareholders seriously. I think the people are too far away from reality.

"IBM's Krishna points to an often cited statement by IBM CEO Virginia Rometty that IBM "will remain a leader in high-performance systems and continues to invest in R&D for advanced semiconductor technology."

and mostly that IBM does not take the shareholders seriously. I think the people are too far away from reality.

I think any company (read GF) will be interested to buy IBM FAB mostly for the IPs as they are very valueable. Apart from that IBM has a greater pool of people that have vast amount of experience. But unfortunately that pool is diminishing by day.

Any executive at IBM will deny that they will sell off the FAB and go FABless as this will undermine the efforts to sell manufacturing units at a good or any price. The hope though lies on P8 but IBM has lost the advantage after being in the high profit margin server segment for long time. Strategic or not, IBM is reorganizing and moving to high margin segments again.

Here's part of an email I got yesterday from a former IBMer respondng to this article who asked to remain anonymous:

"The job market for chip designers in Austin over the last two years has been amazing, with Apple, ARM and Qualcomm all recruting very aggressively and successfully from IBM and other struggling chipmakers like AMD and Freescale. The IBM server development group in Austin has lost a huge amount of intellectual capital, as the best and brightest were drawn away to higher salaries and more promising opportunities. Design teams in Raleigh and Rochester have also suffered big losses.

"East Fishkill can not be economically upgraded" say analysts....LOL this is a absolute nonsense.

Intel is doing the bulk of its 14nm wafers at D1D Fab that is older than East Fishkill.

Moreover East Fishkill Fab is fully equipped of immersion 193um steppers to manufacture the 22nm Power 8 SKUs. Strange enough these steppers are good even for 14nm and 10 nm nodes with multiple patterning.

The real story is that IBM wants to exit from manufacturing as fast as it can, no matter how many people will lose their jobs and no matter the disruptive effect on Common Plataform alliance.